VAT on business expenses: What are the rules for expenses and VAT when staying away from home on business?

Staying away – hotel costs

If the company pays for an employee to stay away from home on business, perhaps they are visiting clients or attending a trade show, then they will most likely stay in a hotel.

In this case, all the VAT can be reclaimed.

However, if part of the stay is for private purposes, perhaps they stay an extra day to see the sights or they take their partner then you can only claim back the VAT on the part that is related to business.

Many people tend to use peer-to-peer solutions such as Airbnb when booking accommodation and this can get a little tricky.

Some of the advertisers are commercial operators and, in this case, as long as they are VAT registered then the VAT can be reclaimed.

Most of the advertisers, though, will be private individuals and are unlikely to be registered for VAT in which case VAT on the accommodation can’t be claimed.

However, often these platforms will charge a booking fee and these can attract VAT so a small amount can be reclaimed as long as you have documentary evidence that VAT was paid.

If your stay is overseas then you can claim back VAT from EU countries, however there is a minimum amount and it is a fairly tortuous process so unless you are looking to claim a large amount of VAT back then it probably isn’t worth it.

We also expect that this will come to an end once the UK is out of the transition period so please make sure you update yourself on the latest rules at the time of your claim.

VAT on subsistence

Employees who stay away from their normal place of work are usually allowed to claim for the costs of meals whilst away.

This is known as subsistence and where the employer reimburses the employee then VAT can be reclaimed.

It’s worth noting that not all food attracts VAT so you do need to be careful here. In general food in the hotel and at restaurants will be vatable.

You also, of course, need to make sure the establishment is VAT registered so again, getting a receipt is key.

Sometimes it is not possible to get a receipt and we’d suggest you’d need pretty strong evidence to be confident enough to claim the VAT back on undocumented spending.

The cost of meals does need to be ‘reasonable’ and because there aren’t any hard and fast rules for VAT we’d suggest that higher costs with a reasonable explanation would be acceptable.

For example, during the London Olympics, hotel, travel and food costs suddenly rose in the capital and it would be understandable if people spent more at these times.

Food and drink at events are also usually sold at a premium so it is reasonable to assume that someone attending a trade show in London may spend more than a service engineer visiting a client in Yorkshire.

You do need to be careful that subsistence doesn’t include any element of business entertaining which is not allowable for VAT purposes.

In other words, food bought for someone who isn’t an employee of the business can’t form part of your input tax.

VAT on travel

Of course, your employees need to get to the location where they are working so there may be some travel costs incurred that you reimburse.

In this instance, you need to think carefully about the type of travel that has been used.

Train and underground tickets, for example, don’t have VAT so you wouldn’t be able to include these as part of a VAT claim on your return and the same is true of scheduled airlines.

Some forms of transport may have VAT on all of the cost such as private hire or taxis but again the operator may be too small to be registered.

Parking will often have VAT, especially where it is provided at an airport or train station.

There are some odd cases where the travel may be vatable but at a reduced rate. Admittedly these are exceptions but if you find your employees claiming for a cable car ticket then watch out!

In summary then, when employees stay away from home on business it is perfectly acceptable to claim back the VAT as part of your return.

However, you must make sure that you have documentary evidence that the expense was incurred, it must be reasonable and that there was actually VAT on the charge in the first place.

Looking for more advice on VAT on expenses? 

We've got many articles and three in-depth guides for you to use when mastering VAT on expenses.